a) Assume that the world consists of Norway and Sweden and that these countries do not

trade with each other. There are two goods in this world: timber and mobile phones. Assume that

Sweden needs 1 worker to produce a unit of timber and 2 workers to produce a mobile phone. Norway

needs 6 workers to produce a unit of timber and 3 workers to produce a mobile phone. We assume

for simplicity that both countries have 24 workers each. Use the Ricardian model to answer the

following question.

- Draw the Production Possibility Frontiers for timber and mobile phones in both countries. (1 Marks)

b) The aircraft industry in Europe receives aid from several governments, according to some estimates

equal to 20 percent of the purchase price of each aircraft. For example, an airplane that sells for $50

million may have cost $60 million to produce, with the difference made up by European governments.

At the same time, approximately half the purchase price of a "European" aircraft represents the cost

of components purchased from other countries (including the United States). If these estimates are

correct, what is the effective rate of protection received by European aircraft producers? (2 Marks)

c) If tariffs, quotas, and subsidies each cause net welfare losses, why are they so common, especially

in agriculture, among the industrialized countries such as the United States and the members of the

European Union? (1 Marks)